China’s Mythical Hard Landing

Many western economic pundits continue to believe that China will experience a hard landing in the near term, even though its economic history over the past 20 years has demonstrated that in spite of global and national economic turmoil, China has always landed on its feet. Although the future direction of Chinese economy is unclear, China is not heading for a hard landing in the near term, but it must adapt to new realities and become more agile than it has been in the past in order to avoid a hard landing in the longer-term.
The Chinese government would be wise to unleash the “big four” banks and allow them to operate on a truly ‘commercial’ basis, to allow for more efficient monetary allocation. China should transform its labor intensive, low value-added economy to a more high value-added knowledge economy. And it should reform the wealth redistribution system to empower its broad consumer base and encourage a consumption-led economy.
While the US enjoys the luxury afforded it by continuing to have the dollar as the world’s de facto currency, and can link hands with its major trading partners to effectively export its liquidity issues and inflation, China enjoys none of that. In this regard, the Beijing consensus makes little sense. Pegging a country’s growth to a certain set of policy tools or a certain reserve currency (the US dollar in this case) is equally dangerous. The world is changing fast. The battle between Keynes and Friedman has long proven that the only consensus that really makes sense in the long haul is to adapt and change. This is the consensus China should be embracing, or it may yet face what has been until now been only a mythical hard landing.